The institutional economics of cultivated mushrooms in Swaziland : a study on value chains, transaction costs and collective action.

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Abstract

This study focuses on commercial mushroom production, a relatively new economic activity
in Swaziland that seeks to assist rural-based small-scale farmers to diversify and improve their
economic independence and livelihoods. The mushroom programme is in line with the
National Development Strategy, which, among its major objectives, aims to address povertyrelated
challenges through the promotion of non-conventional high-value agricultural
commodities that have not been explored by local farmers despite having a relatively high
consumer demand in local and international markets. In attempting to provide an impetus to
the mushroom industry, the Swaziland government currently offers free training in mushroom
production, extension services, high quality spawn at a very nominal fee, and free substrate
bags. Considering the geographical suitability and the magnitude of investment made towards
the mushroom development programme, there is a need to understand why many farmers are
not participating in the industry, and why Swaziland still imports more than 95 percent of
locally consumed cultivated mushrooms. There has also been no research so far on the
challenges and opportunities in producing, value adding, and marketing of mushrooms in
Swaziland. This study was, therefore, an attempt to address these knowledge gaps. It also
provided an opportunity to draw relevant policy and management implications to inform
future strategies in the industry. The specific objectives of the study were to: (i) identify and
examine the factors that influence households’ decisions to participate in mushroom
production; (ii) study the underlying mushroom production and market access constraints; (iii)
examine the effects of transaction cost factors that influence mushroom producers’ market
channel choice decisions and the quantity of mushrooms sold in selected channels; and (iv)
study the effects of organisational form on producers’ participation in collective
responsibilities.
Using cross-sectional data gathered from mushroom producers and non-producers, the results
of the Two-Stage Conditional Maximum Likelihood and Two-Stage Probit Least Squares
estimation methods revealed that farmers’ decisions to participate in the mushroom enterprise
are mainly influenced by institutional factors. Farmers who have undergone training in basic
oyster mushroom production, are located in close proximity to input and output markets, and
have positive perceptions towards mushrooms, are likely to participate in the mushroom
industry. The development of positive perceptions towards mushrooms is predominantly
influenced by the knowledge gained on their nutritional and therapeutical properties.
The value chain approach was used to identify the underlying factors constraining mushroom
production and producers’ participation in mainstream markets. Among the important
findings, the study showed that producers’ plans to expand production capacities are
hampered by the difficulty to access key inputs and services, which are centralised and fully
controlled by the government. Generally, local farmers produce below capacity in relatively
small low-cost structures, which are also not well equipped. As a result, farmers apply very
primitive management methods that eventually affect their productivity. These constraints are
partly responsible for the extremely low locally produced volumes and inconsistent market
supply, prompting local mushroom traders to rely on imports. Other constraints relate to the
lack of diversification as farmers currently produce only the oyster mushroom, yet consumers
are mostly interested in the button mushroom, which is favoured for its appearance and taste.
Currently, no cultivated mushrooms are exported from Swaziland and producers have not yet
engaged in any form of mushroom processing. Instead, from what they harvest, it was found
that about six to 10 percent is consumed at household level and the remainder sold through
four channels identified as: (i) the farm gate; (ii) retail market (supermarkets); (iii)
middlemen; and (iv) food services industry (restaurants/hotels). Among the four channels, the
retail market and farm gate were, respectively, identified as the most preferred. Between the
two, the retail market offers a comparatively higher producer price and a relatively more
dependable market. Cragg’s regression results revealed that producers who are likely to
supply the retail market are those who manage a relatively large number of spawn
impregnated bags, have a high labour endowment, own cold storage facilities, and are
affiliated to mushroom producing groups. However, the difficulty in accessing market
information and lack of bargaining power significantly constrains other producers’ plans to
supply the retail market; hence, they end up selling through less remunerative channels, such
as the farm gate. Producers’ decisions on the quantity of mushrooms supplied through the
retail market are significantly affected by the difficulty in accessing transport and uncertainty
about meeting the retailers’ quality requirements.
Over 90 percent of mushroom producers in Swaziland currently participate in the industry
through farmer groups. These groups are predominantly organised in two forms, depicted as
model A and B, respectively. In model A, besides establishing their own by-laws, members
produce mushrooms in one growing house where they share the costs and benefits of all preproduction,
production and marketing activities. In model B, members also establish their
own by-laws and share all pre-production activities. However, instead of producing under one
roof, each member manages his/her own growing house and members are at liberty to make
their own marketing arrangements independently. The results of the Propensity Score
Matching method indicated that producers affiliated to model B groups have significantly
higher levels of cooperation, which is evidenced in making joint decisions and performing
shared manual activities. Participation in such groups also improves producers’ knowledge of
the enterprise, and reduces the likelihood of internal free-riding.
The overall results of the study point to the need to strengthen farmer training in mushroom
production and value-addition. In attempting to improve producers’ access to key inputs and
services, it is recommended that the government should relinquish its position (to the private
sector) as the only provider of these services, allowing public institutions to assume a
monitoring role. Producers’ competitiveness and sustainable participation in the mushroom
value chain can be enhanced by institutionalising and strengthening collective action, which
can possibly enable them to achieve economies of scale benefits in the input and product
markets, and improve their bargaining position. As indicated in the empirical chapters, market
availability for mushrooms is not a challenge in Swaziland. However, the lack of a market
information system, expert assistance in agribusiness management, poor value chain
governance, and lack of vertical coordination, predispose producers to high marketing and
transaction costs such that they end up selling through less remunerative marketing channels.

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